The discovery of oil in the Gulf in the early decades of the 20th century transformed the Arab states. It also heightened the geopolitical importance of the region.
Some Arab countries, especially Qatar, are among the richest in the world, as measured by GDP per person. In a sense all Arab economies - even those that have little or no oil - rise and fall with the price of oil. That is because many poorer Arabs work in the Gulf and send remittances home. Wealthy Gulf citizens often visit other Arab countries on holiday and spend money there as tourists. Last, grants and aid from Gulf states are more generous when the oil price is higher.
But oil is also something of a curse. Gulf states have build excellent infrastructure, and offer their citizens generous benefits and subsidies. They have high population growth and low productivity growth, so output per person has been stagnant even in times of high oil prices. Saudi Arabia, the world's biggest oil exporter and biggest Arab economy, ranks about 40th in the world in terms of GDP per person.
Will Gulf oil end? Not for decades, if ever. According to the latest edition (here) of the BP Statistical Review of World Energy, the Middle East has proven reserves to cover more than 60 years at current production rates. Output from some smaller producers, such as Bahrain and Oman, have been in decline. But Bahrain recently found a big new deposit. Even in a world that is turning towards electricity as the main source of energy, particularly from renewables, the era of oil is not yet over. In a report late last year, the International Energy Agency, a forecaster, argues (here) that, even as global demand for oil flattens, dependence on cheap-to-extract oil from the Middle East could, in fact, increase: "Once US tight oil plateaus in the late 2020s and non-OPEC production as a whole falls back, the market becomes increasingly reliant on the Middle East to balance the market."
The question for the Gulf is whether it can diversify away from oil, and use its natural bounty to build alternative sources of economic growth. I look at the problem in a chapter (here) of my special report on the Gulf (starts here) .
Will the Arab world be "powerful" in a post-oil world? These days governments worry more about weakness, even of oil states, given the conflicts and civil wars that rage in many parts of the Arab world. The region will remain important even without oil. It will still be at the cross-roads of global trade routes between Africa, Asia and Europe, lying astride the Suez Canal. It is the birthplace of three great monotheistic religions. And like it or not, its troubles reverberate around the world, whether as a source of jihadist violence or source of refugees.
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